Companies want their projects to be successful and full fill both corporate goals and client expectations. But how do things really stand in the real world? According to a PMI analysis, 14% of the IT projects questioned were considered unsuccessful. Merely 57% of the projects were completed within the original budget, while the remaining ones exceeded the self-imposed objective.

This is bad news for businesses because cost overruns affect their profits and make it more difficult for them to carry out upcoming initiatives. Organizations can benefit from knowing what project cost management is and how to use it effectively to stay on course.

Introduction to Project Cost Management 

The project cost management goal is to maintain expenses within the allocated budget by planning and controlling throughout the project life cycle. There are different types of project cost management. These include: 

• Indirect cost 
• Cost estimation 
• Variable cost 
• Direct cost 
• Cost control 
• Sunk cost 

One of the fundamental tenets of project management is project cost control, which applies to all project types, including manufacturing, retail, technology, and construction. Establishing a financial baseline facilitates the project cost management process by which project managers can assess the present state of their project expenses and adjust course as necessary.

Importance of Project Cost Management

It is simple to see why cost management is so important. Setting a budget is the first step in the process of building a house, to use a straightforward example from real life. Once you have an idea of how much to spend on the project, the next thing to do is break down the high-level budget into smaller line items and subtask expenses.

Critical decisions like which designer to hire—someone who can build and complete the project from start to finish, or someone who can assist with a few parts and work within a reduced budget—will be determined by the budget. How many tales ought to be included in the structure? What kind of materials ought to be utilized?

In addition to being challenging to respond to, it is impossible to determine whether you are moving in the right direction once the project is under way without a predetermined budget. The magnitude of this issue is compounded in large businesses by the coexistence of several projects, alterations in initial assumptions, and the addition of unforeseen expenses. Here’s when cost control comes in handy.

Project managers can: by putting effective cost management techniques into practice,

• Clearly define your expectations for the stakeholders.
• Utilize the transparency you’ve built with the customer to keep scope creep under control.
• Monitor developments and swiftly take remedial action when necessary.
• Preserve projected profit margin, boost return on investment, and prevent project losses
• Create data to monitor long-term cost patterns and serve as a standard for upcoming projects.

Advantages of Using Project Cost Management Tools 

Some common advantages include: 

• Clearly define your expectations for the stakeholders.
• Errors caused by hand are prevented when laborious quantitative analysis is automated during estimation and measurement.
• Instead of one-time interventions, continuous monitoring and prompt, proactive responses are made possible by the integration of data across planning, estimating, budgeting, and control.
• Cost software facilitates decision-making by evaluating potential solutions through scenario forecasting and what-if analysis.
• Dashboards and other rich user interfaces provide simple and transparent reporting.
• Project cost software makes the difficult multicurrency management of projects spanning multiple geographic regions simpler.
• Third-party connectors are supported by many project cost solutions, enabling the aggregation and analysis of data.
• Having performance data from several projects available allows for benchmarking and standardization. 

Wrapping Up 

Cost control and the ability of an organization to succeed in both ongoing and upcoming projects are strongly related. Purchasing a dependable cost management program can save a tonne of money. An effective approach to cost management will correlate data across projects and exploit it as essential to project and portfolio performance rather than treating it as a separate activity.